Most companies outsource human resource (HR) functions to save costs. HR outsourcing can also eliminate routine, non-strategic tasks. Outsourcing gives internal HR employees the chance to focus on higher-level, managerial duties. Common HR functions that companies outsource include payroll and benefits. Whether a company uses third-party organizations in the United States or foreign countries, service-level agreements and contracts define the relationship between an organization and the company it outsources to.

Distance

Vendors that handle outsourced HR functions do not form personal relationships with clients' employees and may find it difficult to resolve HR-related issues in a timely fashion. The lag time between reporting a paycheck error, for example, and its resolution may increase. An employee reports the error to an internal HR representative, who must contact the company's vendor to resolve the mistake. The vendor may need documentation and an explanation. On top of the time delay, this could frustrate the employee, since he may not be able to communicate with the vendor directly.

Accuracy

A company that outsources its HR functions is subject to the partner company's weaknesses. If the vendor has computer software or hardware that malfunctions, benefit accounts may not get set up correctly. Direct deposits and paychecks are also at risk in this type of scenario. The vendor may not completely understand the details of the company's business and its operating methods and as a consequence, could be ill-equipped to recognize potential errors. For example, a company that pays commissions to sales representatives decides to change its commission structure. If the company does not communicate the change in detail, the vendor might make mistakes.

Process Improvement

The outsourcing of HR functions could result in poor or nonexistent process improvement. Unfortunately, the vendor may not be as adamant about the company's need for knowledge, or have the time or resources to share its knowledge of HR processes with clients. The HROA Association cites that 46 percent of companies felt that their vendors did not help them improve. Vendors not only have expertise knowledge, they have access to client data. Companies want vendors who use their knowledge to make recommendations that improve service and efficiency.

Contracts

Contracts are a disadvantage if the relationship between the company and its vendor is poor. A set of mismatched expectations and inadequate communication may be two of the root causes. Contract lengths may be five years or more, which is a risk if the company's strategic mission changes. Vendors could have different performance preferences, and standardized methods that aren't capable of meeting precise needs. A company may not be aware of a mismatch until after the vendor starts handling its HR functions.

About the Author

Helen Akers specializes in business and technology topics. She has professional experience in business-to-business sales, technical support, and management. Akers holds a Master of Business Administration with a marketing concentration from Devry University's Keller Graduate School of Management and a Master of Fine Arts in creative writing from Antioch University Los Angeles.